Thinking of renovating before you sell? Think carefully!

Renovate and make money! The claim is made constantly but is it true? Would you be better off merely doing some basic cosmetic work to improve presentation rather than renovating?

Renovating with the purpose of the home owner staying in the property with an improved lifestyle is quite different to renovating for the purpose of making a profit. It’s important to be aware that renovation is no guarantee to making a profit.

Would-be renovators need to be aware that with respect to the value of a property there are two counter-forces at work.

Firstly, there is the land on which the building sits. The price of land appreciates according to market demand and the popularity of the locality. On the other hand most buildings depreciate in value, eventually to the point that their very presence actually devalues a site. In other words the site would be worth more without the building than with it.

Whilst renovating a building undoubtedly improves the value of a property, there’s the question as to whether the consequential improvement in value will be sufficient for the investment in the renovation to be profitable.

Though many people would claim that they renovated and profited, the question arises would they have profited by a greater amount simply by tidying up and perhaps repainting, thus saving the cost of renovation?

It’s a different matter if you’re able to renovate to a professional standard yourself: you’re saving the substantial cost of labour. But if you have to hire people – then think it out carefully!

According to Remodelling Magazine in the USA which publishes an annual “Cost versus Value” remodelling report, on average a remodelled bathroom returns 81% to the owner, a bathroom addition 89%, and a master bedroom suite 82%.

There is some suggestion that the smaller the land area is, in proportion to the overall property value, so the better the proposition of renovation. In other words a renovation project may be a better proposition for giving a return in an old townhouse or home unit rather than a home on a full block.

One well known cautionary measure is to weigh the cost of any improvements you want to make against the overall values in your neighbourhood. If you over-improve for the neighbourhood, you may not boost your property value sufficiently to recover the costs, let alone turn the cost into additional profit.